india market reflections (2008-12)
DESCRIPTION
An Ex-post view on Indian Equities performance especially with regard to Sensex constituents.TRANSCRIPT
© Saurabh, 2013
India Market Reflection 2008 – 2012
© Saurabh, 2013
Economic Indicators- Snapshot
9.3%
6.7%
8.4% 8.4%
6.5%
6.2%
9.1%
13.0%
9.5%
8.4%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
2008 2009 2010 2011 2012
Annual Real GDP Growth v/s Inflation
GDP Growth Annual Inflation
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2008 2009 2010 2011 2012
Fiscal Deficit
Fiscal Deficit
(100,000.0)
(50,000.0)
0.0
50,000.0
100,000.0
150,000.0
200,000.0
2007 2008 2009 2010 2011 2012
FII Activity
Net Investment (in Cr)
1.3%
2.3%
2.8% 2.7%
4.2%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
2008 2009 2010 2011 2012
CAD
© Saurabh, 2013
20686.89
8427.29
20893.57
19476
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
Jan
/20
08
Ap
r/2
00
8
Jul/
20
08
Oct
/20
08
Jan
/20
09
Ap
r/2
00
9
Jul/
20
09
Oct
/20
09
Jan
/20
10
Ap
r/2
01
0
Jul/
20
10
Oct
/20
10
Jan
/20
11
Ap
r/2
01
1
Jul/
20
11
Oct
/20
11
Jan
/20
12
Ap
r/2
01
2
Jul/
20
12
Oct
/20
12
SENSEX
Equity Market
© Saurabh, 2013
Comparison with Global Peers
25.70
3.62
-0.86
13.18
4.63
-3.37
15.15
2.17
-3.26
13.41
8.57
-0.58
(5)
0
5
10
15
20
25
30
1 Year 3 Years 5 Years
Indices Performance
Sensex MSCI World MSCI Emerging Markets S&P 500
© Saurabh, 2013
Value Creation over the Years (2008-12) Stock/Index Sector 5 Years CAGR (in %)
BSE Sensex Index -0.88
ITC IN Equity FMCG 21.38
RIL IN Equity Oil & Gas -10.02
HDFC IN Equity Mortgage Finance 7.23
INFO IN Equity IT 5.82
ICICIBC IN Equity Bank -1.52
HDFCB IN Equity Bank 14.42
LT IN Equity Capital Goods -4.96
ONGC IN Equity Oil & Gas -3.02
TCS IN Equity IT 18.94
SBIN IN Equity Bank 1.19
HUVR IN Equity FMCG 19.15
TTMT IN Equity Auto 16.18
BHARTI IN Equity Telecom -8.10
MM IN Equity Auto 16.58
BJAUT IN Equity Auto 52.85
TATA IN Equity Metals & Mining -14.39
SUNP IN Equity Pharma 25.16
COAL IN Equity Metals & Mining 18.69
MSIL IN Equity Auto 8.48
NTPC IN Equity Power -0.03
GAIL IN Equity Oil & Gas -0.29
CIPLA IN Equity Pharma 14.43
WPRO IN Equity IT 4.96
DRRD IN Equity Pharma 20.32
BHEL IN Equity Capital Goods -15.07
HMCL IN Equity Auto 22.15
TPWR IN Equity Power -6.49
JSP IN Equity Metals & Mining -2.52
HNDL IN Equity Metals & Mining -7.76
STLT IN Equity Metals & Mining -14.68
© Saurabh, 2013
Now, the Building blocks…
© Saurabh, 2013
•Outperformed the broader market by huge margins on sustained basis.
•Probably the only domestic FMCG powerhouse who has managed to fight and sometimes beat its MNC rivals in their own brand games.
•Battery of brands like Vivel, Bingo and Yippee have already started gaining traction in the market.
• With its diverse product lines and each catering to the domestic markets; its one of the few stocks which has a license to give investors a perfect ride on India’s consumption wave.
The Plus factor:
•Valuations look stretched at current levels; limited upside potential in near term.
• Cigarettes volumes have remained flattish in the last quarter and an excise hike is further anticipated on Tobacco products.
•Inflation is also taking a toll on its margins; though to a very limited extent.
Concerns:
ITC is a holding co. which has a diversified presence in Cigarettes, Hotels, Paperboards and Specialty papers, Agri-business, Packaged foods and Confectionery, Branded apparel, Greeting cards and other FMCG products.
© Saurabh, 2013
ITC
91.22
265.63
0
50
100
150
200
250
300
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex ITC IN Equity
27.99 27.40 29.97
31.50 32.67
25
21 24
28 28
0
5
10
15
20
25
30
35
2008 2009 2010 2011 2012
Price Earnings v/s Operating Margin
Operating Margin Price Earnings
13.87 12.94
15.58 16.43 17.51 14.61
5.28
25.37
20.39
24.72
0
5
10
15
20
25
30
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Revenue Growth Net Income Growth
0.79
0.52
0.13
0.47
0.39
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
2008 2009 2010 2011 2012
Debt to Total Assets
© Saurabh, 2013
•Improvement in Gross refining margins is a healthy sign for this scrip; it’s been evident after quite a long interval.
•Huge capex lined up for its upcoming 4G venture; should give it a significant edge over the incumbents as all major players are already struggling with rising costs and cut throat competition.
•The recent spurt in Shale gas price in the US market is a big positive development for this stocks
The Plus factor:
•KG basin has become an albatross around RIL’s neck.
•An aggressive play in the Forex market pose exchange rate risk.
• GOI’s constant policy flip-flop on Natural gas pricing has created uncertainty on future profit potential for it s E&P business.
•Its retail business is yet to become EBITDA positive even after five years of launch.
Concerns:
RIL’s activities span exploration and production of oil and gas, petroleum refining and marketing, petrochemicals (polyester, fiber intermediates, plastics and chemicals), textiles, retail, infotel and special economic zones. The company also owns a petroleum refinery cum Petrochemical complex in Jamnagar (Gujarat) that produces a wide range of products like gasoline, superior kerosene oil & LPG.
© Saurabh, 2013
RIL
94.43
56.06
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex RIL IN Equity
12.59 12.28
9.52 9.01
6.33
17 14
13
16
11
0
2
4
6
8
10
12
14
16
18
2008 2009 2010 2011 2012
Price Earnings v/s Operating Margin
Operating Margin Price Earnings
62.05
-23.5
63.7
-21.26
2.23
20.55
10.26
34.73 30.47
34.87
-40
-20
0
20
40
60
80
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
28.98 30.99
24.90
27.35 28.25
0
5
10
15
20
25
30
35
2008 2009 2010 2011 2012
Debt to Total Assets
© Saurabh, 2013
•Industry leading margins along with solid growth in NII; 24% YoY and 11% QoQ is an excellent performance indicator.
•Strong asset quality despite difficult macro environment.
•The current valuation looks quite attractive and thus triggered strong buy calls from many analysts.
•Going forward, it could be a big benefactor of real estate recovery.
The Plus factor:
•Decline in loan processing fees as a result of change in delivery mix. Loan processing fee declined by 46% YoY and 25% QoQ due to bigger business from third party route.
•Recent regulator intervention in lending rate decisions is a cause of concern for future profitability. Valuations look stretched at current levels; limited upside potential in near term.
Concerns:
HDFC provides long-term housing loans to low and middle income individuals, as well as to corporations. It also provides construction finance to real estate developers, besides providing lease financing facilities to companies and development authorities for infrastructure and other assets.
© Saurabh, 2013
HDFC
92.81
144.31
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex HDFC IN Equity
55.74
-14.84
40.27 39.72
20.63 37.39 32.46
5.71
108.87
16.15
-40
-20
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
•Account mining for its existing top 50 clients hold tremendous potential for impressive top-line growth.
•Its Indian IT bellweather tag would return if Infy is able to deliver several quarters of consistent revenue and earnings performance.
•Strong pile of cash (over 4 billion USD), gives it a leading edge over peers while chasing inorganic growth opportunities.
The Plus factor:
•Macro environment looks turbulent especially in their biggest market i.e. US where many prominent clients have frozen their IT budget on discretionary spending.
•Operating margins have narrowed in FY12 and further drop is anticipated in the coming quarters as a result of increased competition in IT services, higher costs associated with hiring and training employees and rising levels of attrition in the middle band employees.
Concerns:
Infosys Ltd provides IT consulting and software services, including e-business, program management and supply chain solutions. The Group’s service include application development, product co-development, system implementation and system engineering. It targets business specializing in the insurance, banking, telecommunication and manufacturing sectors.
© Saurabh, 2013
Infosys
91.31
139.63
0
50
100
150
200
250
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex INFO IN Equity
© Saurabh, 2013
• NIM has expanded to more than 3%; it more than offsets higher credit costs.
• Its Tier 1 ratio of (13.4% as of Dec 2012) is the best amongst all large sized banks in India.
•Now it has become more global than its peer group with 35% revenue contribution from overseas business. It could be of help while facing headwinds in the domestic market.
The Plus factor:
•Negative growth in CASA deposits reflects slower expansion in branch network and rising competition for saving deposits.
•Finance ministry’s thrust on new bank licenses could pose further threat on margins.
•Rise in NPS in forthcoming quarters on account of tighter provisioning could also derail its business performance in the short run.
Concerns:
ICICI Bank Ltd. operates a network of banks located throughout India. The Group specializes in retail and corporate banking, in addition to forex and treasury operations. ICICI Bank also provides a wide variety of financial services like Investment banking, Broking, Depository, Insurance and Asset management.
© Saurabh, 2013
ICICI Bank
88.04
93.11
0
20
40
60
80
100
120
140
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex ICICIBC IN Equity
23.10
5.26
30.57 30.47
25.43
45.16
6.93
-7.22
3.44
8.28
-10
0
10
20
30
40
50
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
•Top-line grew at an impressive 23.11% YOY in the last quarter. NII grew by 26.7% which is again applaudable in the industry. On both these fronts HDFC bank has been producing Industry leading growth numbers since last year.
• Asset quality continues to remain stable.
•Its AMC and Insurance ventures are also growing well in their respective segments.
The Plus factor:
•Net Interest margin remained flattish at sub 4% level. Margins declined due to lower share of CASA to total deposits.
•New banking licenses could squeeze margins further. But this would certainly not have any near term impact. Concerns:
HDFC Bank Ltd. is a banking company engaged in providing a range of banking and financial services, including commercial banking and treasury operations. The Bank operates in four segments: treasury, which primarily consists of net interest earnings from the Bank’s investment portfolio, money market borrowing and lending, gains or losses on investment operations and on account of trading in foreign exchange and derivative contracts; retail banking, which serves retail customers through a branch network and other delivery channels; wholesale banking, which provides loans, non-fund facilities and transaction services to corporate, public sector units, government bodies, financial institutions and medium scale enterprises, and other banking business, segment includes income from para banking activities, such as credit cards, debit cards, third party product distribution, primary dealership business and the associated costs.
© Saurabh, 2013
HDFC Bank
95.10
199.12
0
50
100
150
200
250
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex HDFCB IN Equity
© Saurabh, 2013
• Order inflows have so far beaten market expectations and deal pipeline also looks quite promising, It s already sitting on an order backlog of INR 1.62 lakh crore.
• De-leveraging efforts have started paying off; the firm will be saving big money on interest expenses.
• Should definitely be a big benefactor of GOI’s strong push for infrastructure growth in the long run.
•Its EPC business also looks fairly attractive.
The Plus factor:
• Revenues and margin expansion has declined in the past couple of quarters.
• Valuations look stretched at current levels considering shrink in margins and the tight interest rate environment. Concerns:
Larsen & Toubro Limited is a technology, engineering, construction and manufacturing company. It operates in various segments including Engineering & Construction, Electrical & Electronics segment, Machinery & Industrial Products, Financial services and others. Engineering & construction Segment comprises execution of engineering and construction projects in India.
© Saurabh, 2013
L&T
94.43
80.21
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex LT IN Equity
8.87
55.37
43.84
-18.25
5.33
43.50 37.63
8.28
19.60
23.58
-30
-20
-10
0
10
20
30
40
50
60
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• Revenue growth has been consistently impressive. It has been achieved on the back of higher crude oil sales volumes.
• Gas price revision as recommended by Rangarajan committee could be a big performance booster for its financials.
•Diesel price hike could be yet another good news for the company though it may not happen immediately as election year is approaching shortly.
•Valuation is fairly attractive at current level.
The Plus factor:
• Higher than expected subsidy burden could erode its margins.
• Lower production volumes form overseas field is also a big cause for concern. Concerns:
ONGC Ltd, a GOI company, is primarily engaged in the exploration and production (E and P) of Oil and Gas reserves. It has two segments namely, E and P, refining. Its subsidiaries include ONGC Videsh Limited (OVL), Mangalore Refinery & Petrochemicals Ltd., ONGC Nile Ganga BV (ONGBV), ONGC Nile Ganga (Cyprus) Ltd., Jarpeno Limited, Imperial Energy Corporation Plc, Imperial Energy Limited and Imperial Energy Kostanai Limited.
© Saurabh, 2013
ONGC
95.27
84.79
0
20
40
60
80
100
120
140
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex ONGC IN Equity
© Saurabh, 2013
• Robust top-line, bottom-line and margin expansion reported in the last several quarters has made it the new bellwether stock of Indian IT pack.
• Increase in business from Nielsen & Citigroup is an early indicator of strong deal flows and repeat business from its bigger clients.
• Its full scale IT services model has started yielding results as more and more clients are looking for order consolidation to bigger players of the industry.
The Plus factor:
• Difficult macro environment could result in sharp decline in discretionary IT services spending by its US & European clients.
• Non-linear growth is yet to produce traction in its Financials. Concerns:
TCS, a Tata group company, is the largest IT service company in India by revenue and market capitalization. It is engaged in providing information technology (IT) services, business solutions and outsourcing. The Company’s services portfolio consists of application development and maintenance, business intelligence, enterprise solutions, assurance, engineering and industrial services, IT infrastructure services, business process outsourcing, consulting and asset leveraged solutions. TCS also services several other industries, such as life sciences and healthcare, hi-tech, energy, resources and utilities, media and entertainment and travel, transportation and hospitality.
© Saurabh, 2013
TCS
95.10
246.44
0
50
100
150
200
250
300
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex TCS IN Equity
21.06
22.96
7.97
24.30
31.00
19.31
4.58
33.18
29.53
14.56
0
5
10
15
20
25
30
35
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Revenue Growth Net Income Growth
© Saurabh, 2013
• Improvement in operating efficiency has been evident at the group level.
• Could be a big benefactor of Interest rate cut and economic growth turnaround.
The Plus factor:
• NIM looks to be under pressure.
•Wage hike is anticipated in the near term.
• Core Tier 1 ratio 9.2% is one of the weakest in the industry. If the situation declines further it will require re-capitalization by GOI.
• Multiples under pressure as revenue growth dips and asset quality concern rise.
Concerns:
State Bank of India is India’s largest bank by both asset size and revenue . As of March 31, 2012, the Bank had a network of 20,193 branches, including 5,096 branches of its five associate banks. In addition to banking, the Company, through its various subsidiaries, provides a range of financial services, which include life insurance, merchant banking, mutual funds, credit card, factoring, security trading, pension fund management, custodial services, general insurance (non-life insurance) and primary dealership in the money market.
© Saurabh, 2013
SBI
94.80
102.59
0
20
40
60
80
100
120
140
160
180
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex SBIN IN Equity
© Saurabh, 2013
• Top line growth looks healthy
• Home and Personal care (HPC) and food business has been doing well since last couple of years.
• Some of its recently launched rural India initiative should start producing tangible results from FY14.
• Commands higher brand recall for most of its products than its arch rivals.
The Plus factor:
• Volume growth has disappointed the street.
• Operating margins have been under pressure.
• Increase in royalty payment to Unilever on sale of certain products will also have a negative impact on the EPS.
• Valuation of FMCG pack looks quite expensive at current levels.
Concerns:
Hindustan Unilever Ltd (HUL), a part of the €40 billion Unilever group, is one of India's largest Fast Moving Consumer Goods company. It operates in seven business segments. Soaps and detergents include soaps, detergent bars, detergent powders and scourers. Personal products include products in the categories of oral care, skin care (excluding soaps), hair care, talcum powder and color cosmetics. Beverages include tea and coffee. Packaged foods include staples (atta, salt and bread) and culinary products (tomato-based products, fruit-based products and soups), Ice creams and frozen desserts.
© Saurabh, 2013
HUL
95.99
242.50
0
50
100
150
200
250
300
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex HUVR IN Equity
9.04
3.98
9.96 10.07 11
0
16
8 6
0
2
4
6
8
10
12
14
16
18
2008 2009 2010 2011 2012
Price Earnings v/s Operating Margin
Operating Margin Price Earnings
© Saurabh, 2013
• JLR sales has been gaining ground since last several quarters.
• Due to JLR’s global reach Tata Motors is more insulated from domestic markets concerns than its peer group.
• Nano’s new positioning strategy has started gaining traction in the market.
• Under the new leadership of Karl Slym the company has already started working on it’s next generation product lines to be built on new platforms.
The Plus factor:
• Domestics passenger vehicle division has lost grip in the market ; they lost the no. 2 title to M&M last year. Already RNT has expressed his disappointment over falling market share to the board.
• CV sale growth has been disappointing due to the high interest rate environment. The development of organized pre-used CV market is also adding woes to the concern.
Concerns:
Tata Motors Ltd. is India’s largest automobile company. It is the leader in commercial vehicles in almost each segment, and amongst the top three in passenger vehicles with winning products in the compact, mid-size car and utility vehicle segments. The company is the world’s fourth largest truck manufacturer and the world’s third largest bus manufacturer. Tata Motors Ltd. has around 62% market share of Indian Commercial Vehicles and 13% of Indian Passenger Cars segment. In 2008, it acquired two British iconic brands, Jaguar & Land Rover.
© Saurabh, 2013
Tata Motors
91.31
199.14
0
50
100
150
200
250
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex TTMT IN Equity
© Saurabh, 2013
• Subscriber base has grown much better than the competition even though ARPU has been falling consistently.
• Bharti Infratel’s listing has unlocked values for the parent firm and provided some support in its deleveraging efforts.
• Has gained the early mover advantage in 4G with its service launch in Kolkata, Pune & Bangalore market.
The Plus factor:
• Intense competition and tariff war has squeezed margins and bottom-lines have been severely hit.
• Bleeding African business is adding woes to investor’s worries.
• 3G has not taken off as per market expectation. Remember it paid the highest ~ INR 13K Crore to acquire 3G licenses in 13 circles.
• RIL’s re-entry into communications business via 4G route could trigger another phase of blood bath in the data segment.
Concerns:
Bharti Airtel Ltd, a part of Bharti Enterprises, is India’s biggest integrated communication company by market cap, revenue and subscriber base. The company provides GSM mobile services, broadband, fixed line telephone services, long distance services (international and national) and enterprise services.
© Saurabh, 2013
Bharti Airtel
95.31
68.72
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex BHARTI IN Equity
57.44
22.88 14.22
-32.64 -29.56
46.64 38.28
12.03
42.28
20.01
-40
-20
0
20
40
60
80
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• Last quarter revenue growth of 29% YOY looked solid on the back of strong UV sales.
• Its margins are much better than Tata Motors in the domestic market.
• XUV 500 volumes have exceeded market expectations. Even its UV line-up and pick-up segment have done reasonably well in the market .
The Plus factor:
• Its Farm equipment division has been posting mute numbers as a result of both weaker agriculture data and high interest rate environment.
• Ssangyong forthcoming product launches might spur brand cannibalization for some of its existing products. Concerns:
Mahindra & Mahindra Ltd. manufactures automobiles, farm equipment and automotive components. The Company's automobile products include light, medium and heavy commercial vehicles, jeep type vehicles and passenger cars. Mahindra & Mahindra also manufactures agricultural tractors, agricultural implements, internal combustion engines, industrial petrol engines, spare parts and machine tools..
© Saurabh, 2013
M&M
90.34
216.97
0
50
100
150
200
250
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex MM IN Equity
4.94
-10.55
76.36
24.25
1.52
36.43
7.76 22.19
58.90 61.18
-20
0
20
40
60
80
100
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• While domestic sales have stagnated marginally its export growth numbers look quite impressive.
• Three wheelers sales have been clocking healthy growth numbers.
• Its margins have always been better than its bigger rival Hero MotoCorp.
•KTM’s performance has improved significantly post Bajaj’s acquisition. Its 2012 volume growth stood 32% on Year on Year basis.
The Plus factor:
• Its biggest weakness is the entry level bike segment where it trails behind the market leader by huge margin.
• Steep rise in commodity prices could make things worse for the company. Concerns:
Bajaj Auto Limited is the flagship company of the Bajaj group. It manufactures and distributes motorized two-wheeled and three-wheeled scooters, motorcycles and mopeds. It is the largest 3-wheeler manufacturer and the second largest 2-wheeler manufacturer in India. In last several years, the company has successfully transformed itself from a scooter manufacturer to 2-wheeler manufacturer.
© Saurabh, 2013
Bajaj Auto
118.39
689.08
0
100
200
300
400
500
600
700
800
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex BJAUT IN Equity
-39.95
-28.52
197.62
116.66
-11.76 -6.67
-2.54 36.67
37.98 18.95
-100
-50
0
50
100
150
200
250
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• Lower production by steel majors could decrease the Industry’s inventory levels and help in price escalation.
• Mean reversion seems quite possible on this counter. The Plus factor:
•Decline in revenue growth .
• Europe continues to pose threat from demand side.
Concerns:
Tata Steel Ltd. is an integrated steel producer which manufactures a variety of steel products. The Company's products include steel ball bearing rings, alloy steel bearing rings, annular forgings, flanges, bearings, welded steel tubes, cold rolled strips and seamless tubes. Tata Steel also manufactures metallurgical machinery.
© Saurabh, 2013
Tata Steel
94.43
44.44
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex TATA IN Equity
195.65
-59.91
-140.58
-547.07
-40.00
421.68
12.01
-30.50 15.98 11.91
-600
-400
-200
0
200
400
600
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• Revenue grew by 33% in the last quarter.
• EBITDA margins have been better than peer group.
• Taro’s performance has been exceeding market’s expectation sine last year.
The Plus factor:
• Competition is heating up in its bread and butter generic drug business.
•Litigation issues could also derail margin expansion in the forthcoming quarters. Concerns:
Sun Pharmaceutical Industries Limited manufactures and markets pharmaceuticals for domestic and international distribution. The Company's pharmaceutical portfolio includes drugs in the areas of diabetes, cardiology, neurology, psychiatry and gastroenterology.
© Saurabh, 2013
Sun Pharma
90.93
298.69
0
50
100
150
200
250
300
350
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex SUNP IN Equity
89.59
21.86
-25.43
34.42
42.47 57.43
27.28
-10.85
50.39
40.01
-40
-20
0
20
40
60
80
100
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• Near monopoly on coal supply to domestic power sector.
• Coal price hike will be a big performance booster for this counter. The Plus factor:
• Margins under pressure; costs exceeded street’s expectations.
• Coal gate scam has affected its operations in Jharkhand and Orissa. Concerns:
Coal India Ltd, a Maharatna PSU, is the largest coal producer in the country with a market share of 81% in domestic coal production. Around 90% of coal is produced from open cast mines and the balance from underground mines. It produces and markets coal and coal products, as well as provides related consulting services.
© Saurabh, 2013
CIL
94.03
143.59
0
20
40
60
80
100
120
140
160
180
Nov-2010 May-2011 Nov-2011 May-2012 Nov-2012
Versus Broader Market
BSE Sensex COAL IN Equity
1.90 -5.19
136.84
12.94
36.08
10.24 18.86 15.02 12.58 24.26
-20
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
• Volume growth has recovered; it still commands a lion share of domestic Passenger vehicles business.
• Battery of some of the best selling hatchback brands put it in an enviable position in the PV market.
The Plus factor:
• Competition intensity is heating up day by day. If competitors wage price war in the entry level hatchback segment then it could severely impact its margins.
• Frequent labor disputes have dented its brand equity especially from employer’s perspective. Concerns:
Maruti Suzuki India Ltd, a subsidiary of Suzuki Motor Corporation of Japan, is India’s largest passenger car company, with 44.9% domestic car market share. Maruti Suzuki offers 14 models with over 200 variants across segments like, Passenger Cars, Utility vehicles, and Vans. Its portfolio has full range of cars- from Maruti 800 & Alto to stylish hatchback Ritz, Wagon R, Swift, A-star, Estillo and sedans DZire, SX4, Kizashi; Utility vehicle like Grand Vitara, Gypsy, Ertiga; Vans include Omni & Eeco.
© Saurabh, 2013
Maruti Suzuki
95.27
149.52
0
50
100
150
200
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex MSIL IN Equity
12.69
-31.43
113.84
-9.23
-29.44
22.98 14.13
43.22
22.78
-3.13
-40
-20
0
20
40
60
80
100
120
140
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• This power sector giant is India’s leading and most dependable energy supplier. With UMPPs limited success in the past, India’s reliance on NTPC’s operations has increased again.
•Despite being a PSU, its efficiency (PLF) in Power generation business is one of the best in the country.
• Now NTPC has secured fuel supply to most of its plants through FSA with CIL . This would ensure that almost all its plants should run at optimum level in future as well.
The Plus factor:
• The industry has gone through a crisis phase recently due to various reasons like Coal gate scam, fuel shortage or environmental concerns.
•The solvency of State Electricity boards also adds woes to the worry of many power producers. So far GoI has insulated it from those perils but it often leads to under recoveries of tariff. Concerns:
NTPC Ltd, a Maharatna status Company, is India’s largest state-owned power generation company. NTPC is primarily in the business of generation and sale of bulk power and is engaged in the engineering, construction and operation of power generation plants. The company is emerging as a diversified power major with presence in the entire value chain of the power generation business. Apart from power generation, NTPC has already ventured into consultancy, power trading, ash utilisation and coal mining.
© Saurabh, 2013
NTPC
94.43
62.32
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex NTPC IN Equity
© Saurabh, 2013
• Partial withdrawal of oil and gas subsidies holds tremendous potential for GAIL.. This looks more real than fiction because GOI is desperately seeking full measures to arrest rise in fiscal deficit.
The Plus factor:
• Increase in natural gas prices by RIL as per Rangarajan committee recommendation by more than 50% would badly impact its margins in the near term as it will have to absorb the impact of hike to the tune of at least 50%.
• Decline in KGD6 output is impacting GAIL’s gas distribution business to a great extent.
Concerns:
GAIL (India) Ltd. is India's flagship natural gas company. It integrates all aspects of the natural gas value chain including exploration & production, processing, transmission, distribution & marketing and its related services. Today, GAIL's Business Portfolio includes 6,700 km of natural gas high pressure trunk pipeline, 7 LPG gas processing units, 1,922 km of LPG transmission pipeline network, 27 oil and gas exploration blocks and 3 coal bed methane blocks. Currently, it sells over 70% of total natural gas in India. Of this, 41% is to the power sector and 30% to the fertilizer sector. It also has a market share of 78% of the gas transmission business in India.
© Saurabh, 2013
GAIL
96.38
97.89
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex GAIL IN Equity
© Saurabh, 2013
•Top-line growth has been healthy especially in the export markets.
•Product line-up in the US looks fairly impressive; it has more than 50 approvals (thru’ partners). It has filed 5 ANDAs this year on its own.
The Plus factor:
• Rise in overheads due to increasing headcounts that too in in front-end roles have impacted margins.
• Domestic sales growth has dipped due to market slowdown.
•Tax rate guidance has been increase d to 24% tom from 20% earlier.
Concerns:
Cipla is one of India’s largest pharma companies by domestic market share, with a strong presence in the anti-asthma, anti-infective, anti-AIDS and cardiovascular segments and a moderate presence in the anti-inflammatory and anti-ulcerants segments. The Company engages in the manufacture, sale, and export of pharmaceutical and personal care products in India and across the globe (in 180 countries). The major revenues come from the domestic market followed by Africa, the Americas and Europe
© Saurabh, 2013
Cipla
95.10
195.90
0
50
100
150
200
250
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex CIPLA IN Equity
0.00
9.98
40.41
-8.59
15.63
0.00
23.69
8.04
16.80
11.57
-20
-10
0
10
20
30
40
50
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• Revenue growth broadly in line with NASSCOM industry numbers.
• Hiving off non-IT business could unlock significant values for its Consumer care, Infra engineering and medical diagnostics divisions.
• Revenue diversification across the IT spectrum will bring a major relief in Investors camp. Although tangible impact of this move would start bearing tangible results only after 2013 fiscal.
•Stability in management should boost its business recovery process.
The Plus factor:
• Weak macroeconomic fundamentals in Europe & the US checks discretionary spending practice of on-shore clients.
• Rise in competition, wage hikes coupled with falling utilization price could impact operating margins in a major way. Concerns:
Wipro Ltd. operates in 3 business segments including IT Services, IT Products and Consumer Care and Lighting. Wipro Technologies, the global IT business of Wipro Technologies, the global IT services business of Wipro Limited is an information technology, consulting and outsourcing company that delivers solutions to enable its clients to do business better. It provides a wide range of software solutions, IT consulting, BPO services and outsourced research and development services to corporations globally.
© Saurabh, 2013
Wipro
95.10
124.73
0
20
40
60
80
100
120
140
160
180
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex WPRO IN Equity
© Saurabh, 2013
•Its low cost operating structure gives it an edge in the Generic drug space.
•Probably one of the few Indian drug manufacturers to have cracked the US Over the counter market so far.
•Product pipe-line looks solid.
The Plus factor:
•Increasing competition could squeeze margins in generic market. Already bigger players have gained access into this business via inorganic route.
•Patent suits in the US market could prove expensive for the firm.
•Betapharm’s acquisition continues to haunt its financials even today.
Concerns:
Dr Reddy’s Labs is India’s second largest Pharmaceutical Company by sales. It operates through five business segments namely Formulations Segment, Active Pharmaceutical Ingredients and Intermediates Segment, Generics Segment, Drug Discovery Segment and Custom Pharmaceutical Services Segment. It also carries out R&D in diabetes, cancer, cardiovascular diseases, and inflammation and bacterial infections and also has a significant presence in the biotech sector. The company market’s its products in over 100 countries but its prime focus is on India, Europe, US and Russia. It is India’s first and the only pharma company to be listed on the NYSE.
© Saurabh, 2013
Dr. Reddys Lab
95.31
259.77
0
50
100
150
200
250
300
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex DRRD IN Equity
-54.64
-309.36
-138.32
184.18
30.23
-23.63
38.18 3.34 5.61 30.44
-400
-300
-200
-100
0
100
200
300
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
•Still commands near monopoly in the Capital goods space.
• Strong financials, lower capex and strong cash-flows still remains its core advantages over peer group.
The Plus factor:
•Weak incremental order inflow is putting brakes on revenue growth and margin expansion. Its already evident in the last couple of quarters.
•Problems in Power sector like shortage of fuel, controversies in land acquisition, delay in environmental clearances is also spelling doom for BHEL
•Increasing threat from L&T, Siemens, ABB apart from Chinese rivals could further derail its top-line growth in the long run.
Concerns:
BHEL , a navratna PSU, is an integrated power plant equipment manufacturer and operates as an engineering and manufacturing company. BHEL operates in two segments: power and industry . It is engaged in the design, engineering, manufacture, construction, testing, commissioning and servicing of a wide range of products and services for the core sectors of the economy, viz. power, transmission, industry, transportation, renewable energy, oil & gas and defence. The Company supplies steam turbines, generators, boilers and matching auxiliaries up to 800 megawatts ratings, including sets of 660/700/800 megawatts based on supercritical technology. In Power generation segment, it supplies range of products and systems for thermal, nuclear, gas and hydro-based utility and captive power plants.
© Saurabh, 2013
BHEL
94.43
45.95
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex BHEL IN Equity
© Saurabh, 2013
• Volume growth has been largely in line with market expectations.
•Neemrana plan would further boost its production capacity. Post Honda split, HMCL has got access to Foreign markets. Exports could add completely new revenue lines for this stock.
•Product pipe-line looks impressive in view with the competition.
The Plus factor:
• Margins are under pressure due to rising competition in its bread & butter 100 C segment.
•Labor unrest in Gurgaon & Union expectations could increase wage costs in the long run. Concerns:
Hero MotoCorp, Ltd., formerly Hero Honda Motors Ltd., is the world’s largest two wheeler manufacturing company. The Company offers two wheeler products that include motorcycles and scooters. Motorcycles contribute around 95% of its total sales. It commands a mammoth 59% market share in the motorcycle segment in India with leadership position in the entry-level segment (75-125 CC).
© Saurabh, 2013
Hero MotoCorp
95.68
268.95
0
50
100
150
200
250
300
350
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex HMCL IN Equity
12.82
32.43
74.12
-13.62
23.35
4.36
19.23
27.92 22.13
21.42
-20
0
20
40
60
80
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
•Rise in tariffs is a significant trigger for its upside potential.
• Improve d coal realizations and low cost of coal production could be another big catalyst for this counter.
The Plus factor:
• Bleeding bottom-line is an early warning for company specific problems.
• Fuel supply problems with both domestic and off-shore vendors could pose big risk to its existing operation. Concerns:
TATA Power Ltd. is India’s largest integrated private sector power company. The company has an installed generation capacity of 3127 MW and a presence across the entire value chain in generation (thermal, hydro, solar and wind), transmission, distribution and trading. It is also involved in coal business.
© Saurabh, 2013
Tata Power
95.68
68.53
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex TPWR IN Equity
12.82 32.43
74.12
-13.62
23.35 38.90
15.51
61.38
4.72
-152.81
-200
-150
-100
-50
0
50
100
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• Steel business is doing well especially its outperformance over domestic peers is really commendable..
•Its PLF is one of the best in the Power sector. The Plus factor:
• Power venture has disappointed the market analysts off late.
•Delay in environmental clearances is derailing power production from new plants . Concerns:
JSPL is a Jindal Group company which operates in a promising mix of two business segments- Power & Steel. It is a leading player in the Steel Industry. The company produces economical and efficient steel and power through backward integration from its own captive coal and iron-ore mines. JSPL is the one of the lowest cost producer of sponge iron in India. JSPL sells power on merchant basis, which commands higher realizations than other power generation companies that are subject to regulated tariffs.
© Saurabh, 2013
JSPL
84.76
92.54
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex JSP IN Equity
© Saurabh, 2013
• EBITDA and Net Income growth has been in-line with market expectations. Net Profit was USD 3 mn against a loss of USD 12 mn in Q3GFY12.
•Management guide for EBITDA/Ton to improve from USD 250/t to 400/t in the next 2-3 years.
• Financials look strong even in weaker periods, this puts Hindalco in a different league altogether.
The Plus factor:
• Overall macroeconomic indicators doesn’t look good especially in the Us and European region.
•Top-line growth has declined during last couple of quarters. Concerns:
Hindalco is the flagship company of Aditya Birla group. The Company operates in two segments: aluminium and copper. is the largest aluminium producer in India and one of the world’s largest aluminium rolling companies. It is also one of the biggest producers of primary aluminium in Asia. The company has captive bauxite mines, that source around 70% of its requirements for its 1.5 mtpa (million tonne per annum) alumina refinery, and its 0.54 mtpa smelting capacity. The company also produces copper and its copper smelting capacity is the largest in Asia. Hindalco’s products include standard and speciality grade aluminas and hydrates, aluminium ingots, billets, wire rods, flat rolled products, extrusions, foil, alloy wheels copper cathodes, continuous cast copper rods along with other by-products, including gold, silver and DAP (Di Ammonium Phosphate) fertilisers.
© Saurabh, 2013
Hindalco
95.61
63.34
0
20
40
60
80
100
120
140
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex HNDL IN Equity
-15.38 -77.99
744.21
-39.87
38.29
213.22
10.14 -7.67 18.93 11.94
-200
0
200
400
600
800
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
• With its huge market share in metals space especially Aluminium, Zinc & Copper, Sterlite is well poised to capitalize on rising demand for those metals.
• There is big potential upside if regulatory issues turns favorable. The Plus factor:
• Integration with Sesa Goa has rather turned out to be an expensive proposition.
Concerns:
Sterlite Industries is a subsidiary of London based Vedanta Resources. It is India’s largest non-ferrous metals and mining company. Its primary business include Aluminum, Copper, Zinc, Lead and Commercial Energy.
© Saurabh, 2013
Sterlite Industries
95.27
43.75
0
20
40
60
80
100
120
2008 2009 2010 2011 2012
Versus Broader Market
BSE Sensex STLT IN Equity
12.88
15.57 15.14 14.71
16.93
0
2
4
6
8
10
12
14
16
18
2008 2009 2010 2011 2012
Debt to Total Assets
0.48
-21.44
5.76
34.69
-4.26
1.31
-14.41
15.87
24.19
35.33
-30
-20
-10
0
10
20
30
40
2008 2009 2010 2011 2012
Top-line v/s Bottom-line Growth
Net Income Growth Revenue Growth
© Saurabh, 2013
Constituents Correlation Matrix
BSE Sensex
ITC IN Equity
RIL IN Equity
HDFC IN Equity
INFO IN Equity
ICICIBC IN Equity
HDFCB IN Equity
LT IN Equity
ONGC IN Equity
TCS IN Equity
SBIN IN Equity
HUVR IN Equity
TTMT IN Equity
BHARTI IN Equity
MM IN Equity
BJAUT IN Equity
TATA IN Equity
SUNP IN Equity
COAL IN Equity
MSIL IN Equity
NTPC IN Equity
GAIL IN Equity
CIPLA IN Equity
WPRO IN Equity
DRRD IN Equity
BHEL IN Equity
HMCL IN Equity
TPWR IN Equity
JSP IN Equity
HNDL IN Equity
STLT IN Equity
BSE Sensex 1.00
ITC IN Equity 0.59 1.00
RIL IN Equity 0.44 -0.38 1.00
HDFC IN Equity 0.89 0.87 0.04 1.00
INFO IN Equity 0.80 0.60 0.07 0.78 1.00
ICICIBC IN Equity 0.96 0.53 0.46 0.84 0.70 1.00
HDFCB IN Equity 0.74 0.97 -0.21 0.94 0.70 0.69 1.00
LT IN Equity 0.89 0.27 0.62 0.66 0.64 0.89 0.47 1.00
ONGC IN Equity 0.86 0.37 0.46 0.69 0.74 0.78 0.54 0.87 1.00
TCS IN Equity 0.73 0.93 -0.25 0.91 0.82 0.66 0.95 0.42 0.53 1.00
SBIN IN Equity 0.88 0.46 0.30 0.76 0.82 0.87 0.63 0.85 0.85 0.64 1.00
HUVR IN Equity 0.36 0.93 -0.49 0.70 0.34 0.31 0.85 0.05 0.17 0.77 0.20 1.00
TTMT IN Equity 0.81 0.87 -0.07 0.93 0.79 0.76 0.92 0.52 0.59 0.94 0.73 0.70 1.00
BHARTI IN Equity -0.02 -0.39 0.44 -0.16 -0.29 0.03 -0.35 0.10 -0.02 -0.36 -0.16 -0.41 -0.32 1.00
MM IN Equity 0.80 0.89 -0.13 0.94 0.84 0.73 0.95 0.57 0.64 0.95 0.72 0.72 0.90 -0.32 1.00
BJAUT IN Equity 0.79 0.92 -0.13 0.94 0.78 0.78 0.96 0.53 0.58 0.96 0.68 0.75 0.93 -0.28 0.97 1.00
TATA IN Equity 0.65 -0.10 0.84 0.31 0.32 0.65 0.05 0.69 0.50 0.09 0.47 -0.29 0.25 0.38 0.13 0.20 1.00
SUNP IN Equity 0.55 0.98 -0.40 0.84 0.58 0.49 0.94 0.22 0.32 0.92 0.41 0.92 0.86 -0.39 0.87 0.90 -0.10 1.00
COAL IN Equity 0.13 0.26 -0.04 0.24 -0.34 0.28 0.30 0.25 -0.07 0.05 -0.02 0.09 -0.15 0.20 0.13 0.00 0.02 0.16 1.00
MSIL IN Equity 0.74 0.51 0.16 0.67 0.76 0.66 0.64 0.69 0.77 0.62 0.76 0.35 0.64 -0.34 0.72 0.62 0.22 0.44 0.09 1.00
NTPC IN Equity 0.25 -0.44 0.71 -0.12 0.06 0.28 -0.27 0.50 0.46 -0.32 0.30 -0.51 -0.21 0.23 -0.17 -0.23 0.44 -0.51 0.01 0.33 1.00
GAIL IN Equity 0.81 0.48 0.20 0.73 0.93 0.74 0.62 0.76 0.82 0.70 0.87 0.19 0.67 -0.22 0.78 0.69 0.37 0.44 0.02 0.78 0.25 1.00
CIPLA IN Equity 0.73 0.78 -0.09 0.82 0.83 0.63 0.85 0.54 0.65 0.85 0.68 0.65 0.81 -0.51 0.89 0.85 0.08 0.76 0.00 0.82 -0.04 0.78 1.00
WPRO IN Equity 0.87 0.62 0.16 0.82 0.96 0.77 0.74 0.69 0.77 0.83 0.83 0.37 0.84 -0.26 0.84 0.78 0.44 0.60 -0.26 0.80 0.09 0.89 0.84 1.00
DRRD IN Equity 0.75 0.89 -0.21 0.91 0.88 0.66 0.93 0.49 0.60 0.97 0.71 0.70 0.92 -0.41 0.97 0.97 0.09 0.87 -0.14 0.70 -0.24 0.79 0.90 0.87 1.00
BHEL IN Equity 0.38 -0.41 0.70 -0.02 0.32 0.38 -0.21 0.66 0.57 -0.19 0.52 -0.61 -0.10 0.17 -0.03 -0.12 0.55 -0.47 -0.01 0.43 0.83 0.52 0.09 0.31 -0.06 1.00
HMCL IN Equity 0.61 0.75 -0.24 0.74 0.82 0.49 0.80 0.42 0.60 0.82 0.61 0.58 0.72 -0.43 0.86 0.87 -0.07 0.70 0.04 0.78 -0.07 0.77 0.86 0.79 0.88 0.08 1.00
TPWR IN Equity 0.74 -0.04 0.80 0.38 0.51 0.73 0.16 0.86 0.74 0.16 0.68 -0.26 0.29 0.20 0.28 0.24 0.83 -0.09 0.13 0.60 0.69 0.62 0.34 0.59 0.23 0.80 0.22 1.00
JSP IN Equity 0.80 0.30 0.38 0.60 0.87 0.72 0.47 0.77 0.82 0.55 0.84 0.03 0.57 -0.14 0.63 0.54 0.52 0.25 -0.12 0.82 0.44 0.91 0.69 0.89 0.64 0.66 0.69 0.78 1.00
HNDL IN Equity 0.83 0.22 0.55 0.60 0.74 0.81 0.38 0.80 0.70 0.49 0.81 -0.07 0.59 0.10 0.53 0.51 0.81 0.22 -0.09 0.50 0.30 0.77 0.46 0.77 0.52 0.56 0.34 0.79 0.79 1.00
STLT IN Equity 0.55 -0.28 0.90 0.14 0.29 0.55 -0.10 0.71 0.55 -0.08 0.46 -0.46 0.05 0.31 0.03 -0.01 0.88 -0.32 0.11 0.39 0.72 0.41 0.10 0.39 -0.03 0.80 -0.02 0.93 0.63 0.69 1.00
© Saurabh, 2013
Disclaimer - Due diligence has been exercised in checking the authenticity of all figures mentioned in this publication. But that does not
guarantee its accuracy or completeness. Also bear in mind that some analysis mentioned in the above is solely intended for illustration purpose. This does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Further any review, retransmission, dissemination, or taking of any action in reliance upon this information by persons or entities other than the intended recipient(s) is prohibited.
28-Feb-2013, © Saurabh 2013 (Saurabh Kumar| [email protected]|+91-8374109195)